The Hollywood Tax Story They Won't Tell at the Oscars

It's easy to demand higher levies on the 'rich' when your own industry gets $1.5 billion in government handouts.

By

Glenn Harlan Reynolds

Updated Feb. 23, 2013 1:37 p.m. ET

At the Democratic National Convention last year, actress
Eva Longoria
called for higher taxes on America's rich. Her take: "The Eva Longoria who worked at Wendy's flipping burgers—she needed a tax break. But the Eva Longoria who works on movie sets does not."

Actually, nowadays an Eva Longoria who flipped burgers would probably qualify for the Earned Income Tax Credit and get a check from the government rather than pay taxes. It's the movie set where she works these days that may well be getting the tax break.

ENLARGE

Daniel Day-Lewis as the 16th president in 'Lincoln.'
DREAMWORKS/20TH CENTURY FOX / THE KOBAL COLLECTION

With campaign season over, you're not likely to hear stars bringing up taxes at this weekend's Academy Awards show. But the tax man ought to come out and take a bow anyway. Of the nine "Best Picture" nominees in 2012, for example, five were filmed on location in states where the production company received financial incentives, including "The Help" (in Mississippi) and "Moneyball" (in California). Virginia gave $3.5 million to this year's Oscar-nominated "Lincoln."

Such state incentives are widespread, and often substantial, but they don't do much to attract jobs. About $1.5 billion in tax credits and exemptions, grants, waived fees and other financial inducements went to the film industry in 2010, according to data analyzed by the Center on Budget and Policy Priorities. Politicians like to offer this largess because they get photo-ops with celebrities, but the economic payoff is minuscule. George Mason University's
Adam Thierer
has called this "a growing cronyism fiasco" and noted that the number of states involved skyrocketed to 45 in 2009 from five in 2002.

In its 2012 study "State Film Studies: Not Much Bang For Too Many Bucks," the Center on Budget and Policy Priorities found that film-related jobs tend to go to out-of-staters who jet in, then leave. "The revenue generated by economic activity induced by film subsidies," the study notes, "falls far short of the subsidies' direct costs to the state. To balance its budget, the state must therefore cut spending or raise revenues elsewhere, dampening the subsidies' positive economic impact."

Sometimes it is even worse, as demonstrated by Michigan's effort, begun under former Gov. Jennifer Granholm, to woo the motion picture industry with an expensive state-of-the-art studio facility built on the site of a former
General Motors
factory in Pontiac. State leaders ballyhooed the plan as a way of moving from old-style industry to new.

Related Video

Despite tens of millions of dollars in state investment, the promised 3,000-plus jobs didn't appear. As the Detroit Free Press reported last year, the studio employed only 15-20 people. That isn't boffo. That's a bust. The studio has defaulted on interest payments on state-issued bonds, and the guarantors—the state's already stressed pension funds—may wind up holding the bag. "In retrospect, it was a mistake," conceded
Robert Kleine,
the former state treasurer who signed off on the plans in 2010.

Michigan has drastically scaled back its subsidies under Gov. Rick Snyder, who said that he would rather spend the money on schools, police or the successful "Pure Michigan" ad campaign aimed at drawing tourists to the state.

Iowa ended its motion-picture subsidies in 2010, after officials misused $26 million in state money, leading to criminal charges. According to a 2008 investigation by Iowa Auditor
David Vaudt,
80% of tax credits issued under the state's film-subsidy program had been issued improperly (to production companies that weren't even spending the money in Iowa, for example). The Council of State Governments reports that other states, from New Jersey to Alaska, are beginning to rethink their subsidies, too.

The $1.5 billion in subsidies that states provide, according to the Center on Budget and Policy Priorities, "would have paid for the salaries of 23,500 middle school teachers, 26,600 firefighters, and 22,800 police patrol officers." Or it could have gone to cut taxes on small businesses, which, as Ms. Longoria noted in her DNC speech, produce two out of three jobs in the economy.

In her words: "It's the suburban dad who realizes his neighborhood needs a dry cleaner. It's the Latina nurse whose block needs a health clinic—and she knows she's the one to open it! It's the high school sophomore who is building
Facebook
's
competitor. They are the entrepreneurs driving the American economy."

And they are the people who aren't receiving the kind of special tax treatment that states dole out to Hollywood.

Mr. Reynolds,
who blogs at Instapundit.com, is a professor of law at the University of Tennessee.

This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com.